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Banks set to appeal overdraft court judgement

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The seven banks and one building society engaged in a High Court test case with the Office of Fair Trading over unarranged overdraft fees are to appeal against the Court’s judgement.

The Court gave permission to the banks to appeal April’s Court judgment that unarranged overdraft fees are assessable for fairness under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs). The banks are appealing on this issue as they continue to believe that the fees are fair and that the UTCCRs do not apply to these types of fees.

There is limited guidance from case law on whether and how the UTCCRs apply in these circumstances and as the test case process is of considerable public interest, it is important for the issues to be fully tested.

As previously agreed with the Financial Ombudsman Service and the Financial Services Authority, customer complaints relating to unarranged overdraft fees will currently remain on hold. The banks will continue to ask County and Sheriff Courts to keep cases relating to unarranged overdraft fees on hold until the test case process is concluded.

A spokesperson for the British Bankers’ Association said: “The Court considered the terms could be assessed for fairness under the UTCCR regulations but that did not mean that the charges were unfair. The banks are to appeal this part of the judgment as they consider these types of fees are fair and the regulations do not apply to them.

“However, it is also in the public interest to have full clarity and it is only the Court which can make the final decision on whether the charges are fair. We will work closely with the courts and with the OFT to bring this to a conclusion as quickly as possible.”

David Black, principal consultant of banking for research organisation Defaqto, said: “If the original judgement is ultimately upheld and a substantive hearing rules that the charges are unfairly high the most likely outcome is that a cap will be placed on the charges but, crucially, the banks will still be entitled to make an element of profit in the fees charged.

“While it will clearly depend on the level of cap enforced it will almost certainly result in the current account landscape being changed significantly as the banks seek to make up any lost revenue in other ways. Limited facility basic bank accounts, which do not have overdraft facilities, will almost certainly remain free but it looks increasingly likely that charges will eventually be introduced for full service current account customers. These may take the form of either pay per transaction or a flat fee with or without discounts for taking other products from the bank or maintaining a specified minimum balance.”

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